In or Out?

Why the UK must remain in the EU for trade's sake

This month, discussions have intensified amongst MPs over whether David Cameron’s proposed referendum on UK membership to the European Union should be legislated. Those against Cameron’s planned referendum date of 2017 worry that announcing it so far in advance will cause uncertainty that could damage the UK’s fragile economic state. However, perhaps the main concern should be whether the public is sufficiently well informed about the economic and political benefits and costs of remaining in the EU in order to make the right choice if and when membership comes to a vote.

From a trading perspective, it is vital for the UK to remain in the EU. As a member of the EU, the UK is part of a twenty eight member political and economic union in which trade, factors of production, enterprise and services move freely within a single market. The EU is the world’s largest single market, with an economic area greater than that of the USA and Japan combined. The UK conducts over half of its total trade with the EU, totalling at a value over £400bn a year.

Emma Reynolds, Labour’s European spokeswoman, argues that the UK is “always likely to be better positioned to secure beneficial trade deals as a member of the EU than as an individual and isolated player”. As globalisation expands, strong trade links are becoming increasingly important; the enhancement of regional cooperation ensures that one country is not left behind as surrounding countries reap the economic rewards of globalisation. Although Euro-sceptic Conservative MP Bill Cash believes that, if the UK pulled out, we would “continue to trade with Europe, as part of an association of nation states”, by abandoning the EU we would lose the political ties that are so necessary to obtaining and holding onto a trading relationship.

It can be argued that, by leaving the EU, the UK would be free to set up advantageous bi-lateral trade agreements through the World Trade Organisation with countries such as China and Brazil, whose export markets are growing fast. However, the UK has a comparative advantage in the trade of services with Europe and, as the service sector makes up around 75% of the UK’s GDP it is vital that we do not risk damaging our exports in services, by leaving behind a successful trading set-up.

Of course, EU membership does not prevent the UK from taking advantage of growth opportunities in other areas of the world. In fact, the EU is currently undergoing negotiations with the US in an attempt to create the world’s largest free trade area. If successful, the opportunities such an agreement would bring for UK businesses to expand could provide argument alone for the UK to remain in the EU.

Free trading blocs facilitate mass production and distribution, which means the UK has access to the benefits from economies of scale by remaining in the EU. So whilst importing some commodities, such as food, from non-EU countries could be cheaper and imply we would be better off on our own, EU membership allows UK firms to increase their competitiveness through the lower production costs that arise when engaging in an economy of scale.

With the upsurge of negative rhetoric by charismatic politicians, such as Nigel Farage, it is crucial that economists take up the challenge and provide some much-needed objective analysis to ignite public debate. Without this, the UK could drift into a referendum, ill-equipped to make the right choice and that could spell economic disaster for the UK.

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